UK job market weakens ahead of business tax hike, US tariffs

The number of UK payrolled workers and job vacancies slid ahead of businesses being hit by tax hikes and US tariffs, official data showed on Tuesday.

Preliminary figures for March showed the number of payrolled employees dropped by 78,000 from February, the Office for National Statistics said in a statement.

That compared with a decrease of 8,000 in February from January, the ONS added.

Job vacancies in the three months to March dipped below pre-pandemic levels for the first time since 2021.

Wage growth, however, remained elevated, with the annual growth in employees’ average regular earning edging up to 5.9 per cent in the three months to the end of February,.

The figures cover the period before the introduction this month of business tax hikes laid out in the Labour government’s maiden budget in October.

It “provides some tentative evidence that businesses started to respond to rises in business taxes and the minimum wage from this month by reducing headcount”, said Capital Economics UK economist Ashley Webb.

Businesses have in particular criticised the tax increases, warning it could lead to them holding back on hiring and limiting pay rises.

The ONS added that the unemployment rate remained at 4.4 per cent in the three months to the end of February.

Webb said jobs growth could be further impacted “from the recent increase in uncertainty due to the chaotic way US tariff policy is being set”.

The UK was hit with a 10 per cent levy on imports to the United States as part of President Donald Trump’s sweeping tariffs, which also target sectors like steel, aluminium and autos.

It creates a difficult situation for the Bank of England which has to contend with persistently high wage growth and stubborn inflation as well as the risks to the economy posed by tariffs.

“With pay growth still running above levels consistent with the inflation target, the... (BoE) will likely continue its gradual approach to cutting interest rates,” said Yael Selfin, chief economist at KPMG UK.

“However, that will be set against growing risks to the domestic economy which are likely to depress labour market activity,” she added.

The BoE recently halved its forecast for the country’s total output this year, blaming global risks amid US tariff threats and deteriorating UK business confidence.

That came as the central bank cut in February its key interest rate by a quarter point, the third such reduction in six months.

The pound edged up on Tuesday, clawing back some gains from the euro in particular, as the volatility that has dominated markets for the past couple of weeks appeared to ebb.

The UK is not as exposed as other parts of the world to US President Donald Trump’s ever-shifting tariffs, like China and the European Union. But with the risk of a global recession rising fast as a full-on trade war unfolds, investor sentiment everywhere is deteriorating.

Sterling was last up 0.2% against the dollar at $1.1322 and gained against the euro, which fell 0.24% to 85.87 pence.

Analysts believe the labour market data will not derail the BoE from cutting interest rates at a rate of one per quarter.

“Rising real wages and the subsequent increase in purchasing power will likely favour additional caution from the BoE going forward. However, there is nothing in the report to suggest the BoE will not continue to cut rates gradually,” strategists at BBVA said in a note.

The pound has risen by nearly 6% against the dollar so far this year, but has lost close to 4% against the euro, which has surged by nearly 10% since the start of the year, as investors have ditched U.S. stocks, bonds and the dollar and poured money into European markets.

Meanwhile, British recruiter Robert Walters said on Tuesday that US tariffs would likely further dent the hiring market in the near term as it reported a 16% drop in the first-quarter income it earns from fees and consulting services.

The warning comes just a week after peer PageGroup withheld its financial forecast and implemented cost-cutting due to what it called “

increasingly unpredictable “ conditions resulting from tariffs imposed by US President Donald Trump.

Even though the duties targeting most countries have been

paused for 90 days, the US tariff offensive has disrupted global trade relations and increased the likelihood of a recession.

This is likely to exacerbate a slowdown in decision-making by prospective employers and job seekers, who were already grappling with political and economic uncertainty in major European economies including the UK, Germany and France.

“Increased uncertainty regarding the flow of global trade due to tariffs is likely to be a further headwind to client and candidate confidence in the near term, limiting visibility on the outlook for the balance of the year,” Robert Walters’ CEO Toby Fowlston said.

Agencies